Trade finance facilitates the movement of goods and services around the world. But much of this $5.2 trillion ecosystem is still done manually and with paper. Finastra and Contour have formed a strategic collaboration to accelerate the transition to digital with the aim of growing the trade finance industry by making it more inclusive and accessible to SMEs.
The digitisation of trade finance is crucial for the growth of global trade, but trade finance products, such as the Letter of Credit, are costly, complex and heavily reliant on paper. As a result, banks are hesitant to offer such solutions to small-and-medium-sized (SME) clients, with only the larger corporates having better access to trade finance.
This is where technology can solve a pain point for the industry.
“Through digitisation, we can help lower the cost to serve for banks. While on the corporate side, we are making trade finance more attractive,” said Josh Kroeker, Chief Product Officer of Contour.
Participants in global trade have learned to live with these pain points but with advances in standards, legislation and technology, Finastra’s Elena Sankova believes that the banking industry no longer has the excuse of enduring the pain and passing it on to their customers.
“As a whole, the IT, legal and trade ecosystem is building up and evolving to reduce the pain from outdated paper-reliant processes. It is fantastic to see how technology and businesses are intertwined today, and how they support and complement each other,” said Sankova who is a Global Solution Consultant and the Head of European Transaction Banking Pre-Sales at Finastra.
Banking on collaboration
In October 2022, Finastra teamed up with Contour to accelerate the adoption of digital trade solutions by linking together the two key components of digital trade finance – a deeply integrated core banking platform for internal processes, and an external decentralised network for bank and corporate customer communication.
The strategic collaboration will see Finastra’s Trade Innovation (FTI) software integrated with Contour’s digital trade finance network, providing banks and corporates with a streamlined end-to-end back-office workflow for Letters of Credit.
Finastra has long supported front-to-back processing in the trade finance landscape for many years. But that concept has changed from vendors trying to tackle every part of the trade process, to a model where Finastra is orchestrating best-in-class trade services within an ecosystem along its own services. We are seeing many new players entering the market to provide their trade services to corporates and banks.
“By opening our back-office platform and turning it into an aggregator that is able to work with transactions originating from different sources, different solutions, or from different platforms, we can interface with all of them,” said Sankova. “And we turn FTI into a powerful back-office engine that becomes a golden source for transaction processing in the bank.”
Enabling seamless dataflow through integration
Finastra and Contour have built the Trade Network Connector, which allows banks to receive and process LC applications from corporates directly in the FTI user interface. The integration between the two solutions is seamless and does not create additional burden for a bank’s operations team.
“What we’ve done is focus on the path of how a Letter of Credit starts. It doesn’t introduce a whole lot of change to the banking side of the LC product, as we’re trying to keep the bank user experience as common as possible,” noted Kroeker.
Contour’s integration with FTI enables a smooth two-way flow of information in a standardised manner for LC issuances, advise and amendments. Data is transferred into a bank’s back-office system, and back out to the Contour network instantly, enabling real-time processing while reducing operational risk.
“The more invisible you can make it for a bank user, the more we’re winning,” he said.
Corporates, on the other hand, will see the biggest change in their user experience. The digital LC simplifies the complex and manual process, significantly reducing the settlement time by up to 90%. Users will be able to make amendments within an afternoon, get real-time visibility of their LC statuses, and reduce their Day Sales Outstanding.
“I see this as the beginning of a fantastic minimum viable product. This is a strong starting point of integration for bank users and that’s going to drive a lot of benefits right out of the gate,” he emphasised.
Growing the global trade ecosystem
With a fully integrated and interoperable solution that is ready for adoption, the next step for Finastra and Contour is to focus on increasing adoption and scaling the connected ecosystem. Finastra has over 170 clients globally in Europe, Americas, the Middle East and Asia Pacific, and it aims to grow its global footprint together with Contour.
“It is about bringing the ecosystem in all its different dimensions to the banks and to the corporates by embedding finance or connecting to digital platforms like Contour. That’s where the future is,” said Sankova.
Collaboration is crucial to the transformation of the trade finance industry, as Kroeker summarised, this isn’t “a winner take all situation or where everyone’s racing to win the trade finance digitisation prize.”
In reality, this is too big of a problem with too many pieces in the puzzle to solve. “We have to work together, and we have to collaborate,” he concluded.
Today, with Finastra and Contour joining forces, a collaborative workflow between trade participants now exists, enabling digital adoption while decreasing client costs, reducing reliance on paper transactions, and risk. This is where the future of trade finance lies.